Africa is the next great frontier for big oil discoveries, and some energy companies with big risk appetite are betting that they would reap as generously as oil majors did decades ago by betting on Nigeria and Angola.
Five African countries that hold their fascination include Ghana, Uganda, Mozambique, Tanzania and Namibia. Smaller oil companies like Reconnaissance Energy Africa are betting they could win here. Reconnaissance Energy Africa acquired the licence for the entire Kavango Basin in Namibia with potentially 18 billion barrels+ of oil-in-place waiting to be proved up to technical recovery.
The African continent holds 7.5 percent of the world’s known oil reserves, and as much of its gas reserves, yet still remains poorly underexplored and as fields mature in other parts of the world, this could make it the last big land-based venue on Earth for oil.
“There is nowhere on earth with as much potential as Africa,” Jay Park, CEO of Reconnaissance Energy Africa, told Oilprice.com in an interview.
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While countries like Nigeria, Angola and Equatorial New Guinea have seen years of oil exploration, their inherent political, fiscal and regulatory challenges make them unattractive for investments.
Nigeria, Africa’s biggest oil producer, is unable to reform its oil sector and a progressive petroleum sector law has been stuck for 19 years. Rampant insecurity, communal agitations, industrial-scale corruption and poor governance have deterred investments into the sector.
In Angola, until 2017 when President João Lourenço took power, replacing Eduardo Dos Santos whose family had held a tight grip on the oil sector since 1979, running a personalised patronage system that saw billions siphoned through corrupt and nepotistic practices, the country had struggled to attract new investments until recent reform measures.
Equatorial Guinea has struggled with mismanagement of public funds and longstanding human rights violations. Corruption and transparency issues represent ongoing operational risks to foreign investment into the upstream sector and the country does not rank highly on bureaucratic, legal environment and the ease of doing business.
But analysts say the African continent is wildly undervalued.
“The value of subsoil resources in OECD countries is at about $300,000 per square mile. In Africa, they’re valued at only about $60,000 per square mile,” Park said.
“This is either because Africa doesn’t have its fair share of the world’s resources, or because it hasn’t found those resources yet. I’d put money on the latter because Africa is vastly underexplored compared to the rest of the world,” he said.
Ghana is believed to have up to 5 billion barrels of petroleum in reserves, which is the sixth largest in Africa and the 25th largest proven reserves in the world, and the country has up to 6 trillion cubic feet of natural gas in reserves.
Mozambique enjoys the largest gas resources in the region and the biggest untapped gas potential. It is planning a massive LNG development in the Rovuma Basin, with production expected somewhere around 2022.
Tanzania, the fastest-growing economy among newer oil players, is second only to Mozambique in terms of natural gas resources, while major oil discoveries in Uganda in 2006 have catapulted the country into fifth place in terms of resources, with first production scheduled for next year.
Namibia is just awakening to oil discovery and has the potential to be bigger in territory than Eagle Ford, the shale basin that put the US on the oil exporter map to rival the best of OPEC.
It has never produced a barrel of oil, but its potential is seeing interest of oil giant Exxon, which recently acquired an additional 7 million net acres from the government for a block extending from the shoreline to about 135 miles offshore in water depths up to 13,000 feet, with exploration activities to begin by the end of this year.
Investments into African energy sector have fallen significantly behind others because of a heavily regulated space and over-taxation, experts say. They also fail to give investors confidence that their discovery will turn into money.
According to Deloitte, the risks are high, and companies need to plan for everything, from regulatory and policy hurdles to problems with third-party partners and suppliers, environmental and labour issues, and overriding questions of infrastructure.
These newer players could get ahead through forward-looking regulatory and fiscal policies while learning from the poor examples of bigger producers like Nigeria and Angola.
